Satisfying the Browser

Internet retailing by its very nature is a numbers game. Using advanced web analytics and e-commerce technology merchants can measure every important aspect of their web site. For many retailers, daily, monthly and annual sales are the biggest indicator of how well they’re performing and stacking up against their key competitors.

As a key measurement, sales volume is tantamount to judging the ongoing success or failure of an online retail site. But sales alone don’t tell the complete story of an e-retailer’s ongoing performance. Equally important are measuring and analyzing customer satisfaction, a barometer that helps retailers gauge and react to changing consumer behavior.

The forward look

Customer satisfaction measurement shows how effectively the online experience is meeting the needs of site browsers today. It also can predict future intent and financial success. Measurement using the methodology of the American Customer Satisfaction Index can show how current satisfaction leads to future loyalty, ongoing retention and positive word-of-mouth referrals.

In short, customer satisfaction provides a forward-looking dimension to the “look back” provided by online sales data. ForeSee Results teamed with FGI Research to look at customer satisfaction levels among the top 40 online retailers as ranked by annual sales in this year’s Internet Retailer Top 500 Guide to Retail Web Sites. This effort marks the second consecutive spring release of the Top 40 Online Retail Satisfaction Index and the third study since last year. Customer satisfaction with the top 40 retailers also is measured during the holiday season for a direct comparison to the rest of the year.

Overall, aggregate customer satisfaction with the top 40 retailers in spring 2006 rose from holiday 2005, but not to the level measured one year ago. The aggregate spring 2006 score for all measured e-retailers is 76 on the ACSI’s 100-point scale. The Top 40 Online Retail Satisfaction Index measures the satisfaction of browsers, which is defined as people who visited a web site but did not necessarily complete a purchase during that visit. With industrywide conversion rates at 3% to 5%, browsers that don’t buy during a given site visit represent enormous potential for growth. Browsers’ satisfaction tends to be slightly lower than customers’ satisfaction.

Winners and losers

The aggregate satisfaction score of 76 for spring 2006 is up 2.7% from the holiday 2005 aggregate score of 74, but still is 1.3% lower than the aggregate score of 77 measured one year ago.

Of the top 40 online retail sites measured by ForeSee and FGI, four sites scored 82 or higher on the ACSI 100-point scale; 82 is considered a superior rating. Netflix.com was the leader in browser satisfaction with a score of 85, followed by Amazon.com at 83 and QVC.com and Newegg.com each at 82. A total of 29 of the 37 companies that were measured in both spring 2006 and holiday 2005 posted higher customer satisfaction scores this time. Only BananaRepublic.com (67), PotteryBarn.com (74) and Buy.com (71) experienced declines.

When the top 40 sites are compared on an annual basis, 24 sites had a lower rating and six sites remained the same. Only seven online retailers, led by Chadwicks.com (78) with a 6.8% jump in satisfaction, managed to increase their scores. Several factors are causing the up-and-down movement of satisfaction scores throughout the year. As expected, satisfaction dropped during the holiday season due to the unique characteristics of the holiday shopping season and an influx of first-time visitors, who are less familiar with or invested in any particular site. As a result, this group is harder to please.

Further, the scores didn’t completely rebound in the spring 2006 index for a fundamental reason: Consumers constantly are raising their expectations and demanding even higher levels of site performance and customer service from the industry’s largest retail sites. As e-commerce continues to evolve, shoppers shape their expectations based on the collective experiences of all the sites they visit. From the customer satisfaction perspective, on the web large multi-channel retailers often struggle to keep up with more nimble web-only merchants and successful direct marketers. For instance, an analysis of browser satisfaction levels reveals that:

l Three of the top performing companies are web-only merchants, which is not at all surprising considering they can devote all resources to the web and don’t have the challenges of multi-channel consistency.

l Amazon.com is the only company that ranks in the top five for both sales (No. 1) and customer satisfaction (No. 2).

l Both Netflix.com (85) and Newegg.com (82) achieved the same satisfaction scores this year and last.

l CompUSA.com experienced a 6% increase from spring 2005.

l ToysRUs.com experienced the biggest decrease since spring 2005 by dropping 7.9% from a score of 77 to 71.

As was the case with last year’s browser satisfaction index, there is a pronounced difference between the satisfaction scores. On average, the top 10% attained a satisfaction score of 83, 22% above the bottom 10% aggregate score of 68. But there also were distinct differences with the elements that drive online satisfaction: merchandise, price, brand and site experience. Between the top and bottom 10%, for example, overall satisfaction with price was 30% higher for the top 10% than for the bottom 10%, while satisfaction with merchandise was 16% higher for the top 10% than for the lower 10%. Further analysis also reveals that the satisfaction score for brands was 10% higher for the top 10% than for the bottom 10%.

The intangible contribution

The contribution of the web goes well beyond the online sales it generates. As a predictive metric, customer satisfaction analytics can project multi-channel sales, future loyalty, retention and word-of-mouth marketing as future outcomes of browsers’ satisfaction.

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When measured correctly, customer satisfaction provides a comprehensive system for understanding what drives satisfaction with the online shopping experience and how satisfaction exerts influence on two critical performance measures: multi-channel sales and word-of-mouth recommendation.

A new key performance metric for multi-channel retailers is the Multi-Channel Value Index, which includes 33 of the retailers in the Top 40 research. This satisfaction-based metric projects the contribution of the web site to sales through any channel and provides a valuable point of comparison for retailers with multiple sales channels. The Multi-Channel Value Index takes into account the intangible value represented by consumers using the web as a research channel, before completing a purchase via a store or catalog.

The MCVI factors the retailer’s online customer satisfaction score into an equation that incorporates likelihood to purchase online and likelihood to purchase through another channel, generating a single score that can be readily compared across retailers to gauge how effectively the web site is contributing to overall sales. MCVI scores, like all ACSI-calculated numbers, are shown on a 100-point scale. Higher scores indicate retailers that are more effectively driving overall sales through the web site shopping experience.

On aggregate, the Multi-Channel Value Index score has increased 2.6% since the holiday season, showing that retailers are more effectively using the online channel to drive overall sales during the non-holiday season than during the hectic holidays. As customer satisfaction and the Multi-Channel Value Index are tightly related, it’s not surprising that the aggregate Multi-Channel Value Index score would rise along with satisfaction.

The word-of-mouth connection

In many cases, we saw a correlation between high satisfaction and high MCVI scores for multi-channel retailers. The top three multi-channel retailers in terms of satisfaction also boast the top three Multi-Channel Value Index scores.

It’s interesting to note that two of the leading retailers in Multi-Channel Value Index scores have a strong direct marketing heritage while the third is a strong bricks-and-mortar retailer.

The survey data shows a strong correlation between customer satisfaction and word-of-mouth recommendation. This is not surprising since the ACSI methodology measures “recommendation” as a direct outcome of customer satisfaction and clearly, consumers need to be highly satisfied to make recommendations to others. Some new business metrics attempt to simplify the performance metrics landscape by focusing exclusively on recommendation as the engine for growth and the Top 40 data provides some interesting insights as to the accuracy and validity of this approach.

The Top 40 data shows that among online shoppers who would be considered “passive” supporters (as defined by scoring “likelihood to recommend” as a 7 or 8) and who reported that they purchased the product they were shopping for, 77% said they purchased from the retailer they were surveyed about. Even more striking was the reported purchase behavior of “detractors” (defined as those scoring “likelihood to recommend” at 6 or under) —60% of the detractors that went on to purchase the product said they purchased from that retailer.

The characterization of detractors as unhappy customers who will impede company growth through negative referrals is called into question by the Top 40 data. 58% of detractors said they were not likely to communicate their experiences with the retailer to others. And of those that were likely to communicate, nearly half would say something positive.

In short, growth is fueled by the combination of recommendation, retention and loyalty, all of which are direct outcomes of satisfaction.

Satisfaction by category

While the top 40 index measures individual performance, there also were some differences between merchandise segments and by retailer type. Among product categories, apparel/accessories had the highest satisfaction score of 76, followed by mass merchants at 75. Of all types of retailers, web-only merchants led all companies with a score of 79 while manufacturers had the same score of 74 as they had in holiday 2005.

The Top 40 Online Satisfaction Retail Index measures the strengths and weaknesses of the industry’s market leaders compared with one another and in their respective categories. But regardless of size, customer satisfaction is a key performance metric, and one that savvy multi-channel and online retailers of all sizes must heed in order to gauge online success. Research shows online retailers must strive to continually stay ahead of rising customer expectations and their competition. Knowing how to analyze and act on changing consumer demand is the difference between keeping satisfied customers and giving away online sales to the competitor who can.

Larry Freed is president and CEO of ForeSee Results.

How the survey was conducted

The Top 40 Online Retail Satisfaction Index measures browser satisfaction with the top 40 online retailers by sales volume from the June 2006 Internet Retailer Top 500 Guide to Retail Web Sites. Satisfaction data was collected through FGI Research’s SmartPanel—a nationwide group of approximately 1.6 million consumer households that have agreed to participate in opt-in surveys—and analyzed using the methodology of the University of Michigan’s American Customer Satisfaction Index. During March and April of 2006, ForeSee Results and FGI Research collected data from 8,400 respondents who had visited the top 40 online retail sites within the last two weeks but didn’t necessarily make a purchase.